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Are RCFEs on Your Radar?

Growing demand for residential care homes is creating a new market niche for agents.

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When another agent in her office asked Janette Ledea if she had a buyer for a single-family listing, she was skeptical. Ledea, GRI, SRES, an agent with RE/MAX Tri-City Realty in Pasadena, Calif., who specializes in residential care facilities for the elderly, considered her buyers’ narrow parameters. It was a long shot, but when Ledea viewed the property, she was pleasantly surprised. The single-level home’s large bedrooms each had exits to the outside, the hallways were wider than three feet, and virtually no modifications would be required: “It was perfect.”

Ledea brought in the buyer, who added a fourth property to an existing portfolio of licensed care facilities; she split the 5 percent commission with the referring agent; and the home was converted to an RCFE.

Floor Plans and More

RCFEs are attractive to families seeking noninstitutionalized alternatives to nursing homes for the elderly and others needing a high level of support. California, an early adopter of RCFEs, experienced a 16 percent increase in capacity or bed count between 2001 and 2010, according to the Scan Foundation, a private organization that addresses long-term care solutions. Given the appeal of this care option, and the growing demand for assisted living, other states are likely to follow California’s lead. By 2030, the population 65 and over is expected to reach 71.5 million, nearly twice their total in 2005. Demographic trends may well push these purchase and leasing transactions onto your radar screen.

Three RCFE Transaction Scenarios

1. A client inquires if a property is suitable for conversion to an RCFE.

2. A client wants to purchase, rent, or sell an existing RCFE.

3. An agent realizes a single-family listing has the hallmarks of an RCFE.

RCFEs are typically three-, four-, and five-bedroom homes that have been renovated to be able to offer 24-hour care and other assisted living services. Although regulations vary by state, California, for instance, enforces strict fire code, safety, accessibility, and space regulations on these homes. If a home is going to be licensed to care for nonambulatory residents, additional regulations are required: Doors must be modified to at least 36 inches for wheelchairs, roll-in showers must be installed, and, in some cases, bedroom windows must be converted to a door to provide an exit. (Split-level or two-story homes are not ineligible, but the liability risk is greater due to falls, and residents who lose mobility have to relocate unless the facility has an elevator.)

Ledea mastered the regulations for care facilities when she was a social worker and worked to help identify properties to relocate individuals with developmental disabilities. Now, she scours the MLS for homes with suitable RCFE floor plans—those with a minimum of 1,800 square feet, which is enough space to accommodate two persons sharing a bedroom, a common configuration. “The bedrooms must be 10 by 11 feet or larger, because you need to fit two twin beds, two chairs for each client, and two dresser drawers.” The challenge, she adds: “You’ll have a three- or four-bedroom home, and two rooms are [the] perfect size and one is [too] small.” Both first-time entrants and experienced RCFE business owners are snapping up properties for sale or lease to accommodate the demand.

Two Transactions

After a workable space has been found, the next hurdle involves licensing. “It’s not finding or selling the house that’s the hard part,” says Cynthia Hazzard, president and broker of The JCH Group, a national full-service real estate brokerage specializing in selling long-term care facilities. “The hard part is getting the license,” says Hazzard, a former licensed assisted living administrator.

Each RCFE transaction is essentially two separate transactions: the home and the license, says James Tran, managing broker of A-Med Realty Group, a Fullerton, Calif., brokerage that sells and leases RCFEs. “The real estate transaction is secondary,” he says. These transactions require Tran to draw on his experience as a former RCFE owner and licensed administrator and his law and MBA degrees. “If a home is already operating as an RCFE, you cannot put it on the MLS,” explains Tran. “That notifies the licensing agency.” That misstep and neglecting to notify residents and their families first could cause a loss of licensure, Tran says.

What’s more, the license is not transferable from one residential-care owner to another. In the case of an existing facility, the licensing can take six to eight months; if the home is a conversion, it can take up to two years to secure the license. “You just cannot take over a license. The [residents] are not a commodity,” explains Ledea. During the purchase of an existing facility, the existing administrator stays on for at least six months to a year, or the new owner must have an experienced administrator.

The Handoff

Agents who are alert and mindful of the basic floor plan requirements for RCFEs have the potential to earn a referral fee or commission split. Tran’s brokerage typically offers real estate agents a referral fee, and A-Med Realty agents handle the transaction. When Hazzard works with residential agents, the agent either receives a referral fee or the commission split tilts in Hazzard’s favor, given the complexity of the licensing, which the former licensed assisted living administrator addresses. “Sometimes I’ll split the real estate portion 50/50 and have them walk away from the business [licensing] portion, or if I have 5 percent, I might give them 2 percent.”

Often, agents simply stray into these transactions when a client inquires about purchasing an existing facility or a conversion. “With 11,000 facilities in [California alone], says Tran, “it’s going to happen.” When it does, Tran, Hazzard, and Ledea concur that handing off the transaction to someone steeped in residential care rules is the best option. “It took years of training,” says Ledea. “I cannot imagine an agent learning this overnight.”